Nov 20, 2019

Axios Markets

By Dion Rabouin
Dion Rabouin

Good morning. It’s Courtenay and I’m filling in for Dion for the next few days.

Today's edition is 927 words, or about a 3-minute read.

  • Reminder: reply to this email with any tips or suggestions.

Situational awareness:

  • The Fed and the FDIC approved the merger between BB&T and SunTrust — crossing the last major hurdle to completing the deal. (American Banker)
  • Higher levels of economic uncertainty caused "virtually all the downside pressure on stock prices over the past two years." (Dallas Fed)
1 big thing: Discount stores woo bargain-hunters

Illustration: Aïda Amer/Axios

Off-price retailers are cashing in on consumers who are increasingly demanding more bargains.

Why it matters: The consumer is emboldened by a steady economy with a low jobless rate and spiking wages. But even with more money in their pockets, shoppers are increasingly turning to retailers that prioritize deals.

One example: TJX Companies — the parent of discount chains TJ Maxx, Home Goods and Marshalls — is drawing more customers into its stores now than in the past. Sales are growing, too.

  • The company has seen increased foot traffic for 21 straight quarters, per the latest financials released by the company on Tuesday.

Other retailers that traditionally haven't been known for deals are struggling to draw in shoppers. To fix that, they're following discounters' lead.

  • Urban Outfitters, which released quarterly results on Tuesday, blamed its profit drop on price markdowns on clothing it couldn't get customers to buy, per Barron's. It's at least the second quarter in a row the company, which also owns Anthropologie and Free People, said it had to cut pricing to entice customers to buy.
  • Kohl's, too, said it stepped up promotions to spur demand for its products.

Yes, but: This strategy isn't fool-proof. "...[M]uch of the discounting is occurring at the weaker retailers which consumers are not inspired to visit,” Neil Saunders, managing director of research firm GlobalData Retail, tells WSJ.

Of note: Analysts say off-price retailers are banking on lower-income shoppers' renewed economic confidence, who are likely to visit their stores.

  • That cohort, which has experienced the fastest pay increases, is opening up its wallets at a faster clip, according to Bank of America.

By the numbers: The report, which analyzed aggregated debit and credit card data of Bank of America cardholders, found that spending growth among consumers who make less than $50,000 a year jumped 5% year-over-year.

  • The uptick "significantly favors market share gains and customer traffic trends at value-oriented retailers," Bank of America analysts wrote.
Bonus: Retail's bad day in perspective
Expand chart
Data: FactSet; Chart: Axios Visuals

Per Reuters: U.S.-China trade war escalation fears plus "dour forecasts from retailers Home Depot and Kohl's fueled worries about consumer spending" weighed on stocks on Tuesday.

  • Keep in mind: the S&P 500 is a mere 0.05% away from its record high.

P.S. ... TJX was the best performing stock in the S&P 500 consumer discretionary sector.

2. AI is coming for white-collar workers
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Data: The Brookings Institution; Chart: Axios Visuals

Axios' Erica Pandey and Kim Hart write: While robots upend blue-collar factory work and trucking in the middle of the country, AI and machine learning are poised to take over white-collar jobs in superstar coastal cities.

Why it matters: No one is immune to the shockwave of automation in the workplace.

What's happening: A new analysis released Wednesday by Brookings overlaid the keywords in AI-related patents with job descriptions to get a more detailed understanding of which jobs are most likely to be affected by AI — and where they are.

  • Industries at risk: Carmakers and clothing makers are using AI for advanced manufacturing on production lines — that’s far more complex than the routine, task-oriented automation that most robots power. Digital services like software publishing and computer system design also show high exposure, along with professional services like purchasing, and agricultural work.

The big picture: Much of the research assessing the workforce impact of these new technologies — robotics, AI and machine learning — lumps them all together under the bucket of automation.

  • The dominant prediction has been that automation will most impact "routine" functions like factory-floor and cashier work.

"There are a lot of high-skilled tasks that will be affected by machine learning, and that's going to be very disruptive," says Erik Brynjolfsson, director of MIT's Initiative on the Digital Economy.

  • Those with bachelor's degrees will be much more exposed to AI than their less-educated counterparts, countering the longtime recommendation that more education will insulate workers from this disruption.
  • Men and workers who are white and Asian American have more exposure than other demographics due to their overrepresentation in technical, engineering and professional roles.
  • However, the highest-paid, most elite workers like CEOs, appear to be more protected.

Keep reading.

3. Uptick in riskier annuities
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Data: Secure Retirement Institute; Chart: Naema Ahmed/Axios

Purchases of variable annuities hit a three-year high last quarter, according to new sales figures released by the Secure Retirement Institute.

Why it matters, per Axios Business Managing Editor Jennifer Kingson: Variable annuities, meant to generate income in retirement, fluctuate depending on the performance of various markets. The fact that consumers are buying them is another indicator of economic confidence.

4. Fidelity gets regulatory OK

More than a year after launching, Fidelity's digital currency arm can offer bitcoin storage and trading services to investors and institutional clients based in New York.

  • The state has only issued 23 of the licenses legally required for businesses to conduct cryptocurrency-related transactions there.

Bonus ... per Politico's Zachary Warmbrodt: The Fed is "exploring whether it makes sense to issue its own digital currency that could be used by households and businesses," per a letter chair Jerome Powell sent to members of Congress on Wednesday.

5. Russell Investments is looking for a buyer
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Source: Dealogic; Note: 2019 represents year-to-date figure; Chart: Axios Visuals

Russell Investments, the Seattle-based asset manager, is on the auction block per the Financial Times.

Why it matters: The interest to sell "follows several bruising years for the [fund management] industry, with profits at some of the biggest fund houses squeezed by the rise of passive investing."

  • It's unclear how much Russell Investment's owner, private equity firm TA Associates, is seeking for the asset manager, the FT notes.
  • Russell Investments was last valued at $1.15 billion when TA Associates bought it in 2016.

The big picture: Fund management has seen a surge of M&A activity in the last few years.

  • "Merging with another firm to gain assets, lift out a star investment team, or buy a specialized manager has long been touted as one way for asset managers to survive falling fees and margins and compensate for a lack of organic growth," as Institutional Investor's Julie Segal noted over the summer.
Dion Rabouin